Sirius Sees $400M in XM Deal Synergies

Sirius Satellite Radio (SIRI - Cramer's Take - Stockpickr) said its proposed merger with rival XM Satellite Radio (XMSR - Cramer's Take - Stockpickr) would produce $400 million in total synergies next year if the deal gains approval soon from the Federal Communications Commission.

Sirius on Monday offered guidance predicting positive free cash flow, before satellite capital expenditures, for the full year 2009. In addition, Sirius and XM also expect to refinance certain debt in 2009 that is scheduled to mature during that year, addressing a major concern for investors.

Sirius said adjusted net income before interest and investment income, interest expense, depreciation expense, and non-cash stock compensation expense for the joined company is expected to be approximately $300 million in 2009. Currently, analysts expect Sirius to post an EBITDA loss of $101.6 million, while it expects XM to report an EBITA loss of $123.6 million in 2009, according to Thomson Reuters.

To date, neither Sirius nor XM has reported positive adjusted EBITDA or achieved free cash flow for a full year.

"The upside potential from this merger is significant," said CEO Mel Karmazin in a statement. "In addition, the synergies, adjusted EBITDA and free cash flow are expected to continue to grow in subsequent years, and we look forward to providing more detail of this growth in coming months."

Sirius warned that the guidance is based on the expectation that the merger will be consummated in the third quarter of 2008, that XM will incur certain incremental interest expense as a result of refinancing certain of its debt and that the combined company will realize certain additional advertising and subscriber revenue synergies as a result of the merger.